Insurance: More Insurers Are Expected to Buy Thrifts

During the past year, commercial banks have generated headlines and controversy for their efforts to market insurance products once sold almost exclusively by independent agents.

But for more than a decade, a small cadre of insurance companies, using easy-to-obtain thrift charters, have been quietly marketing banking products ranging from mortgages and credit cards to checking accounts.

This little-known movement gained a convert last week when Des Moines- based Principal Financial Group, the 10th largest U.S. life insurer, announced that it, too, planned to enter the banking business with a thrift charter. Insurance industry insiders are now predicting that other companies will follow suit.

"The floodgates could open, particularly if Glass-Steagall goes and insurers could get into the commercial banking business," said Roger Brooks, chief executive of Amerus Group, a Des Moines, Iowa life insurance company which has operated a thrift since 1988. "But right now, you can do as much or more with a thrift charter."

Assuming the federal regulators approve Principal's charter application, the company would join insurers such as Prudential Insurance Company of America, Amerus Life Insurance Co., and Acacia Mutual Life Insurance Co., that have been operating their own thrift units for years.

Industry observers expect this exclusive club to grow steadily in the coming years as insurers seek ways to cross-sell more products to their customer base and diversify beyond the mature business of insurance underwriting.

Mr. Brooks' company, Amerus, took a failing Des Moines thrift called Midland Financial Savings and Loan and turned it into Amerus Bank, an institution with branches and loan offices all over the Midwest. From December 1993 through the end of last year, the thrift's assets grew from $900 million to $1.2 million, thanks in part to the development of a supermarket branch system. Today, 32 out of its 47 branches are located in supermarkets.

Moreover, the thrift provides about 20% of Amerus' total profits, Mr. Brooks said, from products ranging from home equity loans to checking accounts.

Washington D.C.-based Acacia Mutual Life Insurance has taken a different approach to selling banking products through its thrift, Acacia Federal Savings Bank, in nearby Falls Church, Va. Unlike branch-rich Amerus Bank, Acacia Federal operates only one branch, preferring to build its business through direct marketing rather than with physical locations.

Despite these success stories, there are many reasons why the insurance industry hasn't flocked into the banking business.

Insurance executives are a conservative lot and "when you become a diversified financial services organization, your life becomes more complicated," said Robert-John H. Sands, senior vice president and general counsel of Acacia Mutual Life.

Moreover, insurance companies have been beholden to their army of career insurance agents and "a thrift could be viewed as a competing distribution channel," Mr. Sands said.

But this kind of thinking is falling by the wayside.

"We just talked to an insurance company that is looking at whether they ought to buy or start a thrift," said Ronald R. Glancz, a partner with the Washington office of Baltimore-based Venable Attornies at Law. "There are a lot of advantages to doing this."

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